Market Equilibrium – Equilibrium Price & Quantity
In a competitive market, price is determined by the interaction of demand and supply.
1. Meaning of Market Equilibrium
Market equilibrium is a situation where quantity demanded equals quantity supplied and there is no tendency for price to change, other things being equal.
- Equilibrium price (Pe): price at which Qd = Qs.
- Equilibrium quantity (Qe): quantity actually bought and sold at that price.
Key Concept – Equilibrium
At equilibrium price, there is no excess demand or excess supply in the market.
2. Determination of Equilibrium (Schedule)
Example: Demand and supply schedules of a commodity.
| Price (₹) | Quantity Demanded (Qd) | Quantity Supplied (Qs) |
|---|---|---|
| 10 | 50 | 10 |
| 20 | 40 | 20 |
| 30 | 30 | 30 |
| 40 | 20 | 40 |
| 50 | 10 | 50 |
Here, at ₹30, Qd = Qs = 30 units → Equilibrium.
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3. Diagrammatic Representation
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At the intersection point E (Pe, Qe):
- Market clears – no surplus, no shortage.
4. Effects of Disequilibrium
(a) Excess Demand (Shortage)
- When price is below equilibrium price.
- Qd > Qs.
- Leads to shortage.
- Buyers compete with each other → price tends to rise back to Pe.
(b) Excess Supply (Surplus)
- When price is above equilibrium price.
- Qs > Qd.
- Leads to unsold stock.
- Sellers reduce price → price tends to fall back to Pe.
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5. Quick Revision Points
- Equilibrium: Qd = Qs; no tendency for price to change.
- Equilibrium price and quantity determined by intersection of demand and supply.
- Price below Pe → excess demand → price rises.
- Price above Pe → excess supply → price falls.
6. Quiz Time 🎯
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